A Fiscal Analysis of Shifting Inlets and Terminal Groins in North Carolina

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1 Attachment 1 A Fiscal Analysis of Shifting Inlets and Terminal Groins in North Carolina Andrew S. Coburn, Associate Director Program for the Study of Developed Shorelines Western Carolina University 294 Belk Cullowhee, NC psds.wcu.edu

2 Executive Summary North Carolina contains some of the most unique and biologically rich coastal ecosystems in the United States, providing immeasurable aesthetic, habitat, recreational and economic benefits. In order to successfully - and equitably - balance long-term environmental and sustainability needs with short-term economic development concerns, state and local coastal management policies, rules and laws must be both technically and fiscally-sound. Nowhere is this more evident than at North Carolina s tidal inlets where these dynamic natural features, once used to lure economic development, are now considered the primary threat to the very development they were used to attract. In response to the risk shifting inlets pose to static economic development, NC coastal communities and property owners typically rely on three mechanisms to protect vulnerable coastal property: 1) Beach restoration 2) Inlet channel realignment and 3) Sandbags. Beach restoration involves the import and emplacement of sand on an eroding beach in order to artificially stabilize inlet and ocean shorelines. Inlet channel realignment modifies the position and orientation of an inlet s main ebb channel in an effort to reduce impacts and erosion rates along adjacent shorelines. Sandbags are a temporary measure intended to provide short-term protection to imminently threatened structures until a more permanent solution can be implemented. A fourth approach, now being actively promoted by some in North Carolina, is the use of terminal groins: shore-perpendicular erosion control structures made of rock or steel placed at the ends of islands near dynamic coastal inlets. Session Law in 2009 instructed the NC Coastal Resources Commission (CRC) to study the feasibility and advisability of terminal groins as erosion control devices. The study, completed in April 2010 at a cost of $280,000, included an assessment of the potential economic impacts of shifting inlets to the state, local governments and the private sector from erosion due to shifting inlets, but failed to provide compelling evidence regarding the economic or fiscal benefits of terminal groins. As a follow-up to that study, the Program for the Study of Developed Shorelines (PSDS) at Western Carolina University examined the economic role of coastal property at ten North Carolina tidal inlets (Bogue, New River, New Topsail, Rich, Mason, Carolina Beach, Cape Fear, Lockwood Folly, Shallotte and Tubbs) to evaluate the potential fiscal costs of property loss as well as fiscal benefits of terminal groins in ten coastal municipalities (Emerald Isle, North Topsail Beach, Topsail Beach, Wrightsville Beach, Carolina Beach, Bald Head Island, Caswell Beach, Oak Island, Holden Beach and Ocean Isle Beach), five coastal counties (Carteret, Onslow, Pender, New Hanover and Brunswick) and one private island (Figure 8 Island). 1

3 Based on this study, PSDS has determined that: 1) Assessed value does not reflect the potential fiscal impacts of shifting inlets to the state or local governments from erosion due to shifting inlets, 2) The fiscal benefits of protecting property at-risk to shifting inlets are small compared to the costs of protection, 3) The use of terminal groins would provide limited fiscal and economic benefits to state taxpayers and local communities and 4) Long-term costs of a terminal groin exceed potential long-term benefits at every developed NC inlet. This analysis indicates that, even ignoring environmental concerns, terminal groins are not a fiscally-sound strategy for dealing with coastal property at-risk to shifting inlets and, due to their limited fiscal benefits, the expenditure of state funds for groin construction/maintenance is bad public policy. 1) Assessed value does not accurately reflect the fiscal contribution investment property atrisk to shifting inlets makes to North Carolina s coastal municipal and county economies According to the CRC terminal groin study, the purpose of the economic assessment component of the study was to assess economic value within areas around developed inlets called 30-year risk areas (30 YRAs) that contain a level of risk approximately equal to the risk indicated by setbacks in adjacent oceanfront areas, as well as the economic value of properties in 30 YRAs having temporary sandbag protection (Table 1). Table 1: North Carolina 30-Year Risk Areas 1. Emerald Isle/Bogue Inlet 2. North Topsail Beach/New River Inlet 3. Topsail Beach/New Topsail Inlet 4. Figure 8 Island/Rich Inlet 5. Figure 8 Island/Mason Inlet 6. Wrightsville Beach/Mason Inlet 7. Carolina Beach/Carolina Beach Inlet 8. Bald Head Island/Cape Fear Inlet 9. Caswell Beach/Cape Fear Inlet 10. Oak Island/Lockwood Folly Inlet 11. Holden Beach/Lockwood Folly Inlet 12. Holden Beach/Shallotte Inlet 13. Ocean Isle Beach/Shallotte Inlet 14. Ocean Isle Beach/Tubbs Inlet A number of components of economic value within these 30 YRAs were considered including residential property, commercial property, government property, road infrastructure, waterline infrastructure, sewer infrastructure, property tax base and revenues and recreation and environmental value. The greatest potential economic impact of shifting inlets, according to the CRC study, is to residential property, which the study quantifies in terms of assessed value. But an economic assessment that focuses almost exclusively on assessed coastal property value - the dollar value of an asset assigned by a public tax assessor for the purposes of taxation - is misleading because changes in value do not accurately reflect actual fiscal impacts coastal counties, municipalities and the state may experience as a result of shifting inlets. 2

4 Taxation or, more specifically, ad valorem tax revenue based on assessed value and generated by residential property, does, however, reflect the potential fiscal impacts various levels of government may experience due to shifting inlets along the North Carolina coast. Ad valorem taxes comprise an average of about 57% of all revenue collected by North Carolina coastal county and municipal governments (Table 2). From the perspective of a public entity such as a coastal municipality or county, the potential loss of ad valorem (and to a similar extent occupancy and sales) tax revenue generated by at-risk residential coastal property represents an accurate and meaningful way to quantify the tangible costs of shifting inlets. Table 2: NC Coastal Municipal and County Jurisdiction Budget Year General Fund Ad Valorem (GF) Tax as a % of GF Bald Head Island FY 2010/11 $8,246,160 $6,815,618 83% Carolina Beach FY 2009/10 $8,203,250 $4,125,000 50% Caswell Beach FY 2010/11 $1,011,618 $547,000 54% Emerald Isle FY 2010/11 $7,016,691 $3,437,423 49% Holden Beach FY 2009/10 $2,417,773 $1,507,023 62% Kill Devil Hills FY 2009/10 $12,035,612 $5,278,985 44% Kitty Hawk FY 2009/10 $5,721,795 $2,476,750 43% Kure Beach FY 2010/11 $2,891,452 $1,538,914 53% Nags Head FY 2009/10 $11,292,993 $4,490,743 40% North Topsail Beach FY 2010/11 $3,339,166 $1,903,186 57% Oak Island FY 2010/11 $11,341,185 $6,472,902 57% Ocean Isle Beach FY 2010/11 $4,156,762 $2,349,000 57% Sunset Beach FY 2009/10 $4,748,773 $2,213,468 47% Surf City FY 2010/11 $5,887,153 $3,120,586 53% Topsail Beach FY 2010/11 $2,092,670 $1,314,690 63% Wrightsville Beach FY 2008/09 $7,722,822 $2,644,346 34% Brunswick County FY 2010/11 $136,232,066 $100,331,000 74% Carteret County FY 2010/11 $74,918,385 $43,290,000 58% Currituck County FY 2010/11 $44,028,000 $24,936,000 57% Dare County FY 2010/11 $99,244,631 $49,309,278 50% New Hanover County FY 2010/11 $253,919,849 $158,778,525 63% Onslow County FY 2010/11 $163,799,539 $70,261,500 43% Pender County FY 2009/10 $49,261,230 $30,238,766 61% Municipal and County Combined Total $919,529,575 $527,380,703 57% Ad valorem tax rates for coastal municipalities and counties adjacent to a developed coastal inlet in North Carolina are $.1559/$100 and $.4455/$100 respectively (Table 3). The loss of a residential coastal property assessed at $1 million, therefore, would result in an annual loss of $6,014 in ad valorem tax revenue [$1,000,000/100 * ( )] - or just 0.6% of the property s $1 million assessed value. 3

5 Table 3: NC Coastal Municipal and County Rates Municipality FY Tax Rate County FY Tax Rate Bald Head Island Brunswick County Carolina Beach Carteret County Caswell Beach New Hanover County Emerald Isle Onslow County Holden Beach Pender County North Topsail Beach AVERAGE Oak Island Ocean Isle Beach Topsail Beach Wrightsville Beach AVERAGE According to the CRC study, 1,983 residential properties with an assessed value of about $1.4 billion are within the state s fourteen 30 YRAs. While losing all at-risk properties is unlikely, the potential fiscal impact to North Carolina s coastal municipalities and counties would be $7,127,087 - the combined local and county ad valorem tax revenue these properties currently generate but would not in the future (Table 4). Over 30 years, using a discount rate of 3% and price appreciation rate of 5%, the loss of 1,983 at-risk coastal properties would result in a loss of ad valorem tax revenue totaling about $292 million - or about 25% of assessed value. Table 4: Properties At-Risk to Shifting Inlets Municipality Year Total Ad Valorem Tax Collected At-Risk Properties At-Risk Properties Bald Head Island FY 2010/2011 $6,815, $1,017,647 Carolina Beach FY 2009/2010 $4,125, $60,776 Caswell Beach FY 2010/2011 $547, $135,483 Emerald Isle FY 2010/2011 $3,437, $71,560 Figure 8 Island N/A N/A 114 N/A Holden Beach FY 2009/2010 $1,507, $207,756 North Topsail Beach FY 2010/2011 $1,903, $157,356 Oak Island FY 2010/2011 $6,472, $181,335 Ocean Isle Beach FY 2009/2010 $2,349, $54,931 Topsail Beach FY 2010/2011 $1,314, $103,165 Wrightsville Beach FY 2008/2009 $2,644, $83,863 $31,116, $2,073,872 County Brunswick County FY 2010/2011 $100,331, $2,705,286 Carteret County FY 2010/2011 $43,290, $205,735 New Hanover County FY 2010/2011 $158,778, $1, Onslow County FY 2010/2011 $70,261, $394,224 Pender County FY 2009/2010 $30,238, $216,313 $402,899, $5,053,209 Total generated by properties in 30 YRA $7,127,087 4

6 The use of assessed value grossly overstates the value of coastal property at risk to, and the potential fiscal impacts of, shifting inlets, thereby resulting in the misperception that much more is at risk than actually is. Using ad valorem tax revenue rather than assessed value provides a pragmatic approach for evaluating the true value of at-risk properties as well as estimating the potential fiscal impact state, county and municipal economies could experience as a result of shifting inlets. An issue that should be considered when evaluating the value of coastal property at risk to shifting inlets, but not discussed in the CRC report or this white paper, is the contribution public policies and actions such as state and federally-subsidized insurance and shore protection projects make to assessed values and, ultimately, ad valorem tax revenue. 2) The fiscal benefits of protecting investment property at-risk to shifting inlets are small compared to the costs of protection While ad valorem, sales and occupancy tax revenue is critical for maintaining the economic viability of coastal North Carolina, an analysis of 30 YRAs at ten NC tidal inlets shows that the contribution residential properties at-risk to shifting inlets make to North Carolina s coastal municipal and county economies is insignificant. Table 5 shows the contribution residential property at risk to shifting inlets makes at the municipal and county level. While coastal counties have more than twice the amount of ad valorem tax revenue at risk than coastal municipalities ($5,053,216 vs. $2,073,872), the relative importance of ad valorem tax revenue generated by at-risk property is greater for municipalities than counties. For example, the total loss of all at-risk residential properties in the Caswell Beach/Cape Fear 30 YRA would eliminate $135,483 - nearly 25% of the municipal ad valorem tax revenue collected by Caswell Beach. Brunswick County s loss of $317,865 in county ad valorem tax revenue times more than Caswell Beach represents only 0.32% of its ad valorem tax revenue. Table 5: Assessed Value of, and, At-Risk Coastal Properties by 30 YRA Community County Inlet Assessed Value of At-Risk Property 2010 Municipal Ad Valorem Tax Generated by At-Risk Properties 2010 County Ad Valorem Tax Generated by At-Risk Properties Bald Head Island Brunswick Cape Fear $310,732,000 $1,017,647 $947,733 Carolina Beach New Hanover Carolina Beach $34,729,000 $60,776 $161,664 Caswell Beach Brunswick Cape Fear $104,218,000 $135,483 $317,865 Emerald Isle Carteret Bogue $89,450,000 $71,560 $205,735 Figure 8 New Hanover Rich $163,186,000 N/A $759,631 Figure 8 New Hanover Mason $46,408,941 N/A $216,034 Holden Beach Brunswick Lockwood Folly $27,240,000 $18,796 $83,082 Holden Beach Brunswick Shallotte $273,855,000 $188,960 $835,258 North Topsail Beach Onslow New River $66,817,693 $157,356 $394,224 Oak Island Brunswick Lockwood Folly $109,900,000 $181,335 $335,195 Ocean Isle Beach Brunswick Shallotte $25,069,000 $22,562 $76,460 Ocean Isle Beach Brunswick Tubbs $35,966,000 $32,369 $109,696 Topsail Beach Pender New Topsail $33,279,000 $103,165 $216,314 Wrightsville Beach New Hanover Mason $84,710,027 $83,863 $394,325 $1,405,560,661 $2,073,872 $5,053,216 5

7 Of the ten municipalities with a 30 YRA, only three have more than 10% of their ad valorem tax base in a 30 YRA: Caswell Beach: 24.8%, Bald Head Island: 14.9% and Holden Beach: 12.5%. The remaining municipalities have an average of 3.2% of their ad valorem tax base in a 30 YRA. No coastal county has more than 1% of its ad valorem tax base in a 30 YRA (Table 6). Table 6: The Contribution of At-Risk Coastal Properties to by 30 Year Risk Area Community Inlet County 2010 Municipal At-Risk Properties % of Municipal Ad Valorem Tax At-Risk 2010 County At-Risk Properties % of County Ad Valorem Tax At-Risk Bald Head Island Cape Fear Brunswick $1,017, % $947, % Carolina Beach Carolina Beach New Hanover $60, % $161, % Caswell Beach Cape Fear Brunswick $135, % $317, % Emerald Isle Bogue Carteret $71, % $205, % Figure 8 Rich New Hanover N/A N/A $759, % Figure 8 Mason New Hanover N/A N/A $216, % Holden Beach Lockwood Folly Brunswick $18, % $83, % Holden Beach Shallotte Brunswick $188, % $835, % North Topsail Beach New River Onslow $157, % $394, % Oak Island Lockwood Folly Brunswick $181, % $335, % Ocean Isle Beach Shallotte Brunswick $22, % $76, % Ocean Isle Beach Tubbs Brunswick $32, % $109, % Topsail Beach New Topsail Pender $103, % $216, % Wrightsville Beach Mason New Hanover $83, % $394, % $2,073,872 $5,053,216 In order to provide an assessment of the current or imminently at-risk property due to potential erosion from shifting inlets, the CRC study identified properties having temporary sandbag protection. These properties are considered at imminent risk, rather than at risk over a 30-year period. Properties located immediately adjacent to erosion control sandbag locations, or between two nearby sandbag locations, were considered to be Imminent Risk Properties (IRPs). Sandbag locations on ocean facing or inlet-facing beaches within the 30 YRAs were considered to be inlet IRPs. Of the state s 1,983 properties within a 30 YRA, 204 (10.3%) are classified as an inlet IRP (Table 7). These properties have an assessed value of $89.6 million and generate $445,767/year in municipal ($102,244) and county ($343,523) ad valorem tax revenue (Table 8). 6

8 Table 7: Imminent Risk Properties Within 30-Year Risk Areas Community Inlet County At-Risk Imminent Risk IRPs as a % of Properties Properties (IRP) At-Risk Properties Bald Head Island Cape Fear Brunswick % Carolina Beach Carolina Beach New Hanover % Caswell Beach Cape Fear Brunswick % Emerald Isle Bogue Carteret % Figure 8 Island Rich New Hanover % Figure 8 Island Mason New Hanover % Holden Beach Lockwood Folly Brunswick % Holden Beach Shallotte Brunswick % North Topsail Beach New River Onslow % Oak Island Lockwood Folly Brunswick % Ocean Isle Beach Shallotte Brunswick % Ocean Isle Beach Tubbs Brunswick % Topsail Beach New Topsail Pender % Wrightsville Beach Mason New Hanover % TOTAL % Table 8: Summary of Imminent Risk Properties (IRP) # Imminent Risk Properties (IRP) 204 % of all Properties in 30 YRA that are IRP 10.3% Assessed Value of IRPs $89,610, Municipal Tax generated by IRPs $102, County Tax generated by IRPs $343,523 Total 2010 Tax generated by IRPs $445,767 As table 9 shows, the loss of all imminent risk properties, a more plausible scenario than the loss of all at-risk properties, would result in an insignificant loss of municipal and county ad valorem tax revenue in every 30 YRA: Bald Head Island has $35,920 in municipal ad valorem tax revenue at imminent risk in the Bald Head Island/Cape Fear 30 YRA the most of any NC coastal municipality. This amount, however, represents only 0.55% of the town s total ad valorem tax revenue. New Hanover County has $120,881 in county ad valorem tax revenue considered in imminent risk in the Figure 8/Rich 30 YRA the most of any NC coastal county. This amount represents only 0.08% of the ad valorem tax revenue collected by the county in Topsail Beach is the only municipality with more than 1% of its ad valorem revenue classified as being in imminent risk. Pender County is the only county with even 0.1% of its ad valorem tax revenue in imminent risk. 7

9 Table 9: Contribution of IRPs to by 30 Year Risk Area 2010 Municipal IRPs % of Municipal Ad Valorem Tax in Imminent Risk 2010 County Community Inlet County IRPs % of County Ad Valorem Tax in Imminent Risk Bald Head Island Cape Fear Brunswick $35, % $33, % Carolina Beach Carolina Beach New Hanover $0 0.00% $0 0.00% Caswell Beach Cape Fear Brunswick $0 0.00% $0 0.00% Emerald Isle Bogue Carteret $11, % $33, % Figure 8 Rich New Hanover $0 0.00% $120, % Figure 8 Mason New Hanover $0 0.00% $0 0.00% Holden Beach Lockwood Folly Brunswick $12, % $53, % Holden Beach Shallotte Brunswick $0 0.00% $0 0.00% North Topsail Beach New River Onslow $6, % $17, % Oak Island Lockwood Folly Brunswick $0 0.00% $0 0.00% Ocean Isle Beach Shallotte Brunswick $2, % $7, % Ocean Isle Beach Tubbs Brunswick $5, % $19, % Topsail Beach New Topsail Pender $27, % $58, % Wrightsville Beach Mason New Hanover $0 0.00% $0 0.00% $102,244 $343,523 3) The use of terminal groins would provide limited fiscal and economic benefits to state taxpayers and local coastal communities Because the CRC study leaves the efficacy of constructing terminal groins at developed North Carolina inlets unresolved, it is difficult to accurately quantify the long-term fiscal benefits terminal groins may or may not produce over a period of 30 years. It is possible, however, to make two assumptions about terminal groins based on the study: 1. All IRPs in North Carolina will be lost over the next 30 years without terminal groins and 2. If they work intended, terminal groins may protect IRPs for the next 30 years. Because the effectiveness of terminal groins beyond IRPs is highly uncertain, IRPs represent atrisk coastal properties most likely to benefit from terminal groins and the continued generation of municipal and county ad valorem tax revenue by IRPs within 30 YRAs is the primary fiscal benefit of constructing a terminal groin in a 30 YRA. In the Ocean Isle Beach/Shallotte Inlet 30 YRA, for example, the primary annual benefit of constructing a terminal groin is $10,147 - the combined municipal and county ad valorem tax revenue currently generated by 24 IRPs in this 30 YRA. Over 30 years, using a discount rate of 3% and price appreciation rate of 5%, the primary fiscal benefit of constructing a terminal groin in Ocean Isle Beach at Shallotte Inlet is $415,633 (Table 10). Table 10 shows that the estimated annual primary fiscal benefit of constructing a terminal groin in each of the state s 30 YRAs is $445,767. Over 30 years, using a discount rate of 3% and price appreciation rate of 5%, the primary fiscal benefit of constructing terminal groins in all 30 YRAs (even though six have no IRPs) is $18,259,148. Note that this table includes only municipal and county ad valorem tax revenue due to the small number of impacted properties (204) and limited contribution of other revenue sources. 8

10 Table 10: Primary Fiscal Benefit of a Terminal Groin by 30 Year Risk Area 2010 Municipal IRPs 2010 County IRPs 2010 Combined IRPs Community Inlet County 4) Long-term costs of a terminal groin exceed potential long-term benefits at every developed NC inlet NPV of Ad Valorem Tax IRPs Over 30 Years Bald Head Island Cape Fear Brunswick $35,920 $33,452 $69,372 $2,841,560 Carolina Beach Carolina Beach New Hanover $0 $0 $0 $0 Caswell Beach Cape Fear Brunswick $0 $0 $0 $0 Emerald Isle Bogue Carteret $11,500 $33,062 $44,562 $1,825,313 Figure 8 Rich New Hanover $0 $120,881 $120,881 $4,951,430 Figure 8 Mason New Hanover $0 $0 $0 $0 Holden Beach Lockwood Folly Brunswick $12,024 $53,152 $65,176 $2,669,687 Holden Beach Shallotte Brunswick $0 $0 $0 $0 North Topsail Beach New River Onslow $6,863 $17,193 $24,056 $985,362 Oak Island Lockwood Folly Brunswick $0 $0 $0 $0 Ocean Isle Beach Shallotte Brunswick $2,312 $7,835 $10,147 $415,633 Ocean Isle Beach Tubbs Brunswick $5,760 $19,520 $25,280 $1,035,499 Topsail Beach New Topsail Pender $27,865 $58,428 $86,293 $3,534,664 Wrightsville Beach Mason New Hanover $0 $0 $0 $0 $102,244 $343,523 $445,767 $18,259,148 The CRC study estimates the initial cost of constructing a 1,500-foot terminal groin, similar in size to the structure currently at Fort Macon, to be $10,850,000 with total annual maintenance costs of about $2,250,000. Using a 3% discount rate and price appreciation rate of 5%, the estimated total cost of constructing and maintaining one terminal groin in North Carolina over 30 years is approximately $54,950,993. This amount is more than ten times greater than the potential long-term fiscal benefit of constructing a groin at Figure 8/Rich Inlet ($4,951,430) and about three times greater than the combined long-term benefit of constructing terminal groins at all fourteen 30 YRAs ($18,259,148). Given the CRC study and an evaluation of other terminal structures, a scenario in which terminal groins protect only IRPs over a 30-year period is rational. However, due to uncertainty in the efficacy of terminal groins, PSDS also assessed a best-case scenario in which the benefits of terminal groins extend to every at-risk property within every 30 YRA for 30 years. In this scenario, long-term costs are projected to exceed potential long-term benefits (measured by the continued generation of ad valorem tax revenue) in every 30 YRA except Bald Head Island/Cape Fear (Table 11). It should be noted that the potential fiscal benefits of constructing and maintaining a terminal groin at Bald Head Island over a period of 30 years are split almost equally between Bald Head Island ($41,684,034) and Brunswick County ($38,820,273). 9

11 Table 11: Estimated Best-Case Fiscal Benefit of a Terminal Groin by 30 Year Risk Area Community Inlet County 2010 Municipal all At-Risk Properties 2010 County all At-Risk Properties 2010 Total all At-Risk Properties NPV of Ad Valorem Tax all At-Risk Properties Over 30 Years Bald Head Island Cape Fear Brunswick $1,017,647 $947,733 $1,965,380 $80,504,307 Carolina Beach Carolina Beach New Hanover $60,776 $161,664 $222,440 $9,111,408 Caswell Beach Cape Fear Brunswick $135,483 $317,865 $453,348 $18,569,674 Emerald Isle Bogue Carteret $71,560 $205,735 $277,295 $11,358,334 Figure 8 Rich New Hanover N/A $759,631 $759,631 $31,115,391 Figure 8 Mason New Hanover N/A $216,034 $216,034 $8,849,010 Holden Beach Lockwood Folly Brunswick $18,796 $83,082 $101,878 $4,173,044 Holden Beach Shallotte Brunswick $188,960 $835,258 $1,024,218 $41,953,190 North Topsail Beach New River Onslow $157,356 $394,224 $551,580 $22,593,374 Oak Island Lockwood Folly Brunswick $181,335 $335,195 $516,530 $21,157,684 Ocean Isle Beach Shallotte Brunswick $22,562 $76,460 $99,022 $4,056,059 Ocean Isle Beach Tubbs Brunswick $32,369 $109,696 $142,065 $5,819,152 Topsail Beach New Topsail Pender $103,165 $216,314 $319,479 $13,086,241 Wrightsville Beach Mason New Hanover $83,863 $394,325 $478,188 $19,587,150 Discussion Assessed property values do not reflect the potential costs of shifting inlets to coastal municipalities, counties or the state. Ad valorem tax revenue generated by at-risk coastal property represents a more realistic and accurate way to quantify the potential fiscal impacts a North Carolina coastal county or municipality might expect as a result of shifting inlets. The assessed value of 1,983 properties at-risk to shifting inlets in North Carolina is approximately $1.4 billion. Losing every at-risk property, however, would translate into an annual loss of $7,127,087 in county and municipal ad valorem tax revenue a figure that is 0.5% of assessed value. Over 30 years, using a discount rate of 3% and price appreciation rate of 5%, the NPV of this statewide loss is $292 million. While $7,127,087 in annual lost ad valorem tax revenue seems significant, it represents less than 5% of municipal ad valorem tax revenue and 0.37% of county ad valorem tax revenue collected by NC coastal communities and counties containing a developed in Of the state s 1,983 at-risk properties, 204 are classified as Imminent Risk Properties (IRPs). These properties represent 0.45% of coastal municipal ad valorem tax revenue and 0.04% of coastal county ad valorem tax revenue collected in IRPs also represent the primary beneficiaries of terminal groins, and the continued generation of ad valorem tax revenue by IRPs resulting from the emplacement of terminal groins can be used to quantify the potential fiscal benefits of terminal groins. Using IRPs as a proxy to estimate the impacts of terminal groins, annual municipal benefits range from $0 in seven locations (Carolina Beach/Carolina Beach Inlet, Caswell Beach/Cape Fear Inlet, Figure 8/Rich Inlet, Figure 8/Mason Inlet, Holden Beach/Shallotte Inlet, Oak Island/Lockwood Folly Inlet and Wrightsville Beach/Mason Inlet) to $35,920 in Bald Head Island. 10

12 Annual County benefits using IPRs as a proxy range from $0 in six locations (Carolina Beach/Carolina Beach Inlet, Caswell Beach/Cape Fear Inlet, Figure 8/Mason Inlet, Holden Beach/Shallotte Inlet, Oak Island/Lockwood Folly Inlet and Wrightsville Beach/Mason Inlet) to $120,881 in Figure Eight Island. The NPV of ad valorem tax revenue generated by IRPs and assumed to be protected by a terminal groins over 30 years, using a discount rate of 3% and price appreciation rate of 5%, ranges from $0 in six locations (Carolina Beach/Carolina Beach Inlet, Caswell Beach/Cape Fear Inlet, Figure 8/Mason Inlet, Holden Beach/Shallotte Inlet, Oak Island/Lockwood Folly Inlet and Wrightsville Beach/Mason Inlet) to $4,951,430 at Figure Eight Island/Rich Inlet. The annual fiscal benefit of constructing and maintaining a terminal groin at every developed NC inlet, in terms of protecting municipal and county ad valorem tax revenue generated by IRPs, is $445,767. The NPV of this ad valorem tax revenue over 30 years, using a discount rate of 3% and price appreciation rate of 5%, is $18,259,148. When the protective benefits of terminal groins are extended to all 1,983 at-risk properties, the NPV potential fiscal benefits (over the next 30 years) range from about $4 million at Ocean Isle Beach/Shallotte Inlet to about $80.5 million at Bald Head Island/Cape Fear. The cost of constructing and maintaining one terminal groin in North Carolina over 30 years, using a discount rate of 3% and price appreciation rate of 5%, is estimated by the NC CRC to be $54,900,993. When put in proper context, the cost of constructing and maintaining a terminal groin exceeds potential fiscal benefits at every North Carolina inlet. Summary of Findings Assessed property value is not an accurate metric for quantifying the fiscal impacts of chronic erosion and coastal storm impacts and should not be used to justify the expenditure of public funds for erosion control measures. A fiscal analysis of tax revenue impacts to NC coastal municipalities, counties and the state is a sound methodology by which to evaluate the potential impacts of shifting inlets as well as potential costs and benefits of constructing and maintaining terminal groins. The average annual fiscal impact, in terms of property tax revenue, of losing a $1 million coastal property in NC is $6,014. The combined impact of losing a coastal property at-risk to shifting inlets in NC is about 0.6% of the property s assessed value. 1,983 residential coastal properties are considered at-risk to shifting inlets in NC. Properties at-risk to shifting inlets represent about 9% of all municipal and county ad valorem tax revenue collected coast-wide in Of the ten NC municipalities adjacent to a shifting inlet only Caswell Beach, Bald Head Island and Holden Beach have more than 10% of their ad valorem tax base at risk to shifting inlets. The remaining coastal municipalities have an average of 3.2% of their ad valorem tax base at-risk to shifting inlets. 11

13 Of the 1,983 coastal properties at risk to shifting inlets, 204 (10.3%) are classified as being in imminent risk. Properties in imminent risk to shifting inlets represent about 0.08% of all municipal and county ad valorem tax revenue collected coast-wide in The CRC study estimates the cost of constructing and maintaining one terminal groin in North Carolina over 30 years to be approximately $54,950,993. Using IRPs as a proxy for estimating the impacts of terminal groins, annual fiscal benefits of constructing a terminal groin at every developed NC inlet is $445,767. Over 30 years, the primary fiscal benefit of constructing a terminal groin at every developed inlet is $18,259,148. Terminal groins are not a fiscally-sound strategy for dealing with coastal property at-risk to shifting inlets The limited fiscal benefits produced by terminal groins do not justify the expenditure of state funds. 12